putting retained earnings into pension fund?

[ASB]

Stop....don't do a thing.

NZ....has no Capital Gains tax....too complicated...bless 'em!

Close the company, take it as a capital gain when you are tax resident in NZ.....no tax to pay...no need to wait for retirement!

So....close company, and transfer funds in the year you move back to NZ.
(should be done together....don't leave the money in a closed company..or you will lose it)

Provided the corporation tax exit charge can be avoided (and it probably can). If not, Gordon would like to get his mitts on CT on the retained assets.

Transferring funds in the year of moving may be too soon. Could still be tax resident in the UK. further you can't just "take it as a capital gain". It's a concession you must apply for (and will normally get).

[bananarepublic]

Retained earnings pension contribution

If you are earning a salary from another source and have retained earnings in your company making a company contribution to a pension scheme is not very effective as
a) You would have to draw a salary from the company to justify the pension contribution (on money already subject to CT) and
b) Your pension payments would be from money already subject to CT.

There is as indicated some uncertainty as to how much your company can contribute into a pension scheme if it is a high fraction of the salary drawn from the company. Best not to bother with the uncertainty as there are easier ways of achieving what you want.

Winding up your company is a possibility although new CGT rules come into force April 6.

If you are earning a salary elsewhere take the retained earnings from your company as a dividend and pay this into your pension. As long as the gross pension contribution is less than your salary then the pension contribution will be subject to tax relief.

Remember that if you make a contribution to a personal pension personally (i.e. not through a company) the contribution is a net amount and basic rate tax relief will automatically be added on top (i.e 7800 becomes a 10K contribution). This automatically negates the CT. If you are a higher rate tax payer the you will be able to reclaim tax on your self assessment form to further reduce the net cost.

Oh, yes, on further point. If you are not a higher rate tax payer the amount of basic rate tax relief will drop from 22% to 20% when the basic rate tax rate changes I believe on April 6th this year. (ie you need to contribute 8K net to get a 10K contribution)

Don't trust my advice though - you should take advice as to exactly how much you should contribute based on your circumstances.

[max]

Hey folks,
My wife and i have a limited company with some retained income held in it.
We are thinking of winding up the company and moving the retained income into a pension fund.
From my research it appears that if we put it into a pension fund as an employer contribution then we wouldnt have to pay tax on it.
Would we have to pay NI?
I realise we wouldnt be able to access it till we retire, but are there any other drawbacks of my cunning plan?
Thanks in advance, your wisdom is appreciated!
Greg

Stop....don't do a thing.

NZ....has no Capital Gains tax....too complicated...bless 'em!

Close the company, take it as a capital gain when you are tax resident in NZ.....no tax to pay...no need to wait for retirement!

So....close company, and transfer funds in the year you move back to NZ.
(should be done together....don't leave the money in a closed company..or you will lose it)

[Billy Pilgrim]

the money is already CT paid.

THere is no tax to avoid.

Paying it from the company into a pension would be misguided.

Just pay it out as a dividend, or Capital Distribution via winding up.

Divvy or winding up is the way to go......HOWEVER....

Divvies will still be 'taxed' as personal income (if you earn above the 40% tax rate)...so if you still intend to work then closing the company and taking a 10% hit on the tax is by far the best way to go......

I think?

Do a bit of research on this subject! Or pay an accountant a fe quid for peace of mind!

[dude69]

the money is already CT paid.

THere is no tax to avoid.

Paying it from the company into a pension would be misguided.

Just pay it out as a dividend, or Capital Distribution via winding up.

[Hex]

Very true. If you have already paid CT on it then it loses a lot of its advantage.

[ASB]

I reckon you can pay it all into a company pension directly. There was talk about the tax man not looking favourably on large pension contributions with small salary a few months ago (as mentioned above) but I believe that this is now thought not to be true as long as the combination of salary and pension are in keeping with the renumeration you could expect for the role you are doing.

I paid myself about 10K salary last year and 30K or so in pension.

If you pay it into a pension as a company contribution, there is no NI to pay.

Yes, but the issue is one of relief. Company pensions are paid gross, but you need to ensure there is something to get relief against which can be difficult if not actively trading.

[Hex]

I reckon you can pay it all into a company pension directly. There was talk about the tax man not looking favourably on large pension contributions with small salary a few months ago (as mentioned above) but I believe that this is now thought not to be true as long as the combination of salary and pension are in keeping with the renumeration you could expect for the role you are doing.

I paid myself about 10K salary last year and 30K or so in pension.

If you pay it into a pension as a company contribution, there is no NI to pay.

[ASB]

Check if you can still carry back pension contributions for the previous year. This may ease things.

Alternatively, let's say there is 50k of retained funds. Pay yourself a salry in this year of 50k. Pay 50k in pension contributions via salary sacrifice (there is a school of thought that this is definitely OK, but as usual it is not clear cut).

Assuming you have no other transactions this year then you have a 50k loss this year. Now you claim relief against previous years CT, effectively enabling you to carry back this loss into last year and get the CT back.

The problem with either of theses approaches is that in recent years carry back has been revised, so I don't know the current rules. But your accountant will.

[Pickle2]

I assume you have allready paid CT on these funds, as you describe them as "retained". Sounds to me like you would be best closing the company, distributing whatever funds you have as a capital gain and thus using your CGT allowance, paying 10% on the rest.

then stick the cash into the pension as a personnel contribution and have the tax man top it up.

[rootsnall]

There is still some debate on if you can make large employer contributions into a pension if you are following the low salary/high dividend model. My accountant advises only paying in up to the level of your salary but others think it's OK to pay as much as you like. There is plenty of previous debate on here about it and PCG have some info on it but as usual nothing is 100% clear cut. In theory you could pay zero tax/NI and I don't think the taxman would like that, if you could I'd do it for the next year or two.

[muhnkee_2]

Hey folks,
My wife and i have a limited company with some retained income held in it.
We are thinking of winding up the company and moving the retained income into a pension fund.
From my research it appears that if we put it into a pension fund as an employer contribution then we wouldnt have to pay tax on it.
Would we have to pay NI?
I realise we wouldnt be able to access it till we retire, but are there any other drawbacks of my cunning plan?
Thanks in advance, your wisdom is appreciated!
Greg